The Union Budget 2024-25 has made big changes to the capital gains tax framework, offering both challenges and benefits for investors.
While the removal of the indexation benefit on property sales and higher taxes on equity gains may seem unfavourable, there are positive aspects to consider.
Higher exemption limit on equity gains
Firstly, the exemption limit on gains from equities has increased from Rs 1,00,000 to Rs 1.25 lakh, providing some relief to investors.
LTCG tax on property, gold rates reduced
Additionally, the reduction of long-term capital gains (LTCG) tax from 20% to 12.5% could be advantageous for property and gold sellers, depending on the period of holding and gains accrued. For instance, if a property’s value has increased more than the inflation rate, the lower tax rate can be more beneficial.
Uniform rates, standardised holding period
Moreover, the Budget has introduced parity in taxation across different asset classes.
The holding period for various financial and non-financial assets has been standardised to one year for listed assets and two years for others.
Long-term capital gains on listed and unlisted equities are now taxed at a uniform rate of 12.5%, simplifying tax computations and bringing clarity to the tax regime.
Krishna Patwari, Founder of Wealth Wisdom India Pvt Ltd, said, “The budget places a strong emphasis on simplifying and rationalising capital gains tax. The Finance Minister’s proposal to set a uniform 20% tax rate for short-term gains on financial assets, along with a reduced 12.5% rate for long-term gains on financial assets, is a significant shift.”
“Previously, long-term gains on unlisted shares were taxed at 20%. This reduction makes unlisted shares a more appealing investment, potentially boosting investor interest and improving liquidity in this segment,” he added.
Narinder Wadhwa, Managing Director of SKI Capital, agrees.
“The simplification of capital gains taxation, with a uniform rate of 20% for short-term and 12.5% for certain long-term gains, is likely to be viewed positively by investors, providing clarity and potentially increasing investment activity,” he said.
Other positive takeaways
The Budget has also addressed anomalies in the taxation of certain funds. Gold mutual funds, gold ETFs, and international equity funds will now benefit from the new LTCG tax rate if held for over 24 months, making them more attractive to investors.
Simply put, despite some negative impacts, the capital gains tax changes in Budget 2024-25 offer several advantages, including higher exemption limits, lower LTCG rates for certain assets, and simplified tax structures.
